Making Sense of Types of Real Estate Financing: A-lenders, B-lenders & Private Mortgages

Most of us aren’t lucky enough to be able to buy a home on cash alone. A large portion of investors get started by arranging some sort of financing. The question is which option is best – both from a financial and planning perspective. Today, we’re reviewing three common routes to give you the context you need to make a smart investment.

What Is an A-Lender?

An A-Lender refers to a financial institution, such as a major bank or credit union, that is federally or provincially regulated and offers mortgages and other loans to borrowers who meet strict credit and income criteria. These institutions typically require applicants to have a good credit score – usually above 650 – a stable and verifiable income, and a low debt-to-income ratio. 

Because A-Lenders view these borrowers as low-risk, they provide the most competitive mortgage rates and standard loan products, such as fixed-rate and variable-rate mortgages. A-Lenders also require applicants to pass a mortgage stress test, which ensures the borrower can afford their payments at higher interest rates, further reducing risk for both lender and borrower. 

A-lenders are subject to stringent government regulations, ensuring transparency and stability in their lending practices. A-Lender mortgages are generally best suited to individuals with consistent employment, strong financial histories, and the ability to provide a sufficient down payment.

A-Lenders In Canada

A-Lenders encompass the largest, most regulated banks and credit unions in the country. Well-known Canadian examples include:

• Royal Bank of Canada (RBC)
• Toronto-Dominion Bank (TD)
• Scotiabank
• Bank of Montreal (BMO)
• Canadian Imperial Bank of Commerce (CIBC)
• National Bank of Canada

What Is a B-Lender?

A B-Lender is a financial institution or mortgage company that provides loans to borrowers who do not qualify for a traditional bank (A-Lender) mortgage due to issues such as lower credit scores, higher debt levels, or irregular income. B-Lenders are often referred to as alternative or subprime lenders and cater to individuals who need more flexibility in lending criteria—examples include self-employed people, new immigrants, or those with recent credit setbacks. The interest rates at B-Lenders are usually higher than at banks because the perceived risk is greater, and borrowers are typically required to provide a larger down payment (often around 20%). Mortgages through B-Lenders are generally structured as short-term solutions (1 to 3 years) designed to help borrowers improve their financial profile and later switch to an A-Lender for better terms.

B-Lenders In Canada

B-Lenders offer mortgages to those who don’t meet the strict criteria of A-Lenders, including self-employed borrowers, individuals with lower credit scores, or people with non-traditional income. 

Prominent examples are:

• Home Trust
• Equitable Bank
• MCAP (including Eclipse and Excalibur lines)
• First National Excalibur
• Haventree Bank
• Bridgewater Bank
• Community Trust
• CMLS Aveo

What Is a Private Mortgage?

A private mortgage is a short-term home loan offered by non-traditional lenders, such as individuals, syndicates, or companies, rather than banks or credit unions. Private mortgages are primarily used by borrowers who cannot qualify for A-Lender or B-Lender loans, often because of unique circumstances such as poor or limited credit history, unconventional income, or challenging property types. These loans usually feature faster approval processes and more flexible qualification standards but are characterized by higher interest rates and often focus only on the value of the property rather than borrower income. Private mortgages are typically designed for short durations (3 to 24 months) and are regarded as temporary solutions until the borrower can transition to a more traditional lender.

Private Mortgage Lenders In Canada

Private lenders are non-bank and non-trust companies, mortgage investment corporations, or individuals offering short-term, high-flexibility loans with less emphasis on credit scores or income. 

Examples in Canada include:

• Alpine Credits
• Alta West Capital
• Atrium Mortgage Investment Corporation (MIC)
• Bridgewater Bank (also offers private mortgages)
• Canadian Mortgages Inc. (CMI)
• Capital Direct Lending Corp.
• Clover Mortgage
• Ginkgo MIC
• RiverRock MIC
• Vault Mortgage Corp.
• Westboro MIC
• VWR Capital

Which Lending Option Is Best for Airbnb Investors?

For Airbnb investors, the best mortgage option depends on creditworthiness, financial stability, down payment ability, and long-term strategy. Generally, A-Lenders offer the lowest interest rates and the most favorable terms, making them the preferred choice for those with strong credit, stable income, and the ability to pass traditional mortgage stress tests. However, many Airbnb investors may not qualify for A-Lender financing, especially when declaring short-term rental income or managing multiple properties.

B-Lenders serve as a viable alternative for investors who have lower credit scores, higher debt ratios, or less traditional income sources. While their rates are higher and down payments larger (typically at least 20%), B-Lenders are more flexible and accommodating of rental income, self-employment, and unique property types common in short-term rental investments. B-Lender mortgages often act as a stepping stone until investors can strengthen their credit or financial position and move to an A-Lender for better rates.

Private mortgages are best suited for investors who need fast financing, cannot meet the criteria of A- or B-Lenders, or are working with unconventional properties. Private lenders typically focus on the property’s equity and location rather than personal income or credit score, offering rapid approvals and considerable flexibility. These attributes come at the cost of higher interest rates and fees, so private mortgages are generally regarded as short-term solutions.

For the majority of Airbnb investors seeking long-term profitability and manageable monthly payments, qualifying for an A-Lender is the most advantageous, though B-Lenders offer a reasonable middle ground for those who do not meet strict bank standards. Private lending is best reserved for complex scenarios, urgent needs, or as a temporary strategy while building eligibility for traditional financing.